Statistics Modeling in Finance Coursework

Statistics Modeling in Finance Coursework

MATH3/4/68191 Statistical Modelling in Finance

1.Download (to spreadsheet) historical prices from Yahoo! Finance of the three stocks AZN.L, BT-A.L
and UU.L from 1-Nov-13 to 31-Oct-14 (daily). Combine and edit the data in Excel leaving only the
trading dates (VolumeÈ0) in chronological order and dividend adjusted closing prices of the stocks.
(a) Useread.csv to read the data into R, then plot the price of each stock against trading day =1
(1-Nov-13), 2 (2-Nov-13), etc and comment on them. [2]
(b) Compute daily (net) returns for each stock and estimate the mean and standard deviation for
each stock and correlations between stocks. (Usemean(x), sd(x)andcor(x,y).) Comment on
your estimates. [4]
(c) Produce a graph showing the efficient frontier and the minimum variance portfolio consisting of
the three stocks. Explain what they represent. You may write by hand on the graph. [4]
(d) If you have £10000 to invest in these shares to achieve a reasonable target return (you decide),
what do you think is the best way to divide between them? Explain what you did and mark your
portfolio on the efficient frontier. [10]
2.(Level4/MSc only)
(a) Why do we consider residual correlation in regression analysis? [2]
(b) Fit a quadratic regression model
imports ~ t + I(t^2)
with correlated errors, state the criterion to be maximised/minimised, give reasons for your
choice of a correlation structure, and check correlation in filtered residuals. See week 4 extra
example 2 for data and a simpler model. Is thet
2
term required? [8]

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